While individuals cower, investor pros rush into stock market
Even as anxiety-ridden individuals play it safe in low-yielding bank accounts, professional investors are showing renewed confidence in the stock market.
Bullishness among institutional investors has reached its highest level since last summer, and their buying has been powering the stock market’s surprising early-year advance, according to a new analysis by TrimTabs Investment Research. The Dow Jones industrial average is up almost 4% in the first three weeks of January.
It should be noted that such bullishness isn’t necessarily positive. Widespread optimism sometimes has foreshadowed a drop in share prices. If most investors are already in the market, the logic goes, then there are few new buyers left to come in and lift prices even higher.
Still, the upbeat mood among institutional investors points up the vastly divergent opinions between Wall Street and Main Street.
Risk-averse retail investors have contributed only $3.3 billion into stock mutual funds so far this month, even though inflows are typically heavy in January. Individuals stuffed $932 billion into checking and savings accounts last year, dwarfing the $117 billion they put in stock and bond mutual funds and exchange-traded funds, according to TrimTabs.
“While retail investors continue to put most of their money under the mattress, institutions are more bullish now than at any time since the big sell-off in early August 2011,” said David Santschi, a TrimTabs executive vice president.
A variety of surveys and other sentiment indicators point to rising bullishness among professionals.
A survey of hedge funds showed that 42% of managers are optimistic vs. 30% who are bearish, the highest level of bullishness since July. Among newsletter writers, 51.1% are bullish, the most since April. And a Bank of America poll of global fund managers showed them to be the most upbeat about U.S. stocks since April 2010.
Other technical indicators also point to bullishness among pros. For example, short interest on stocks listed on the New York Stock Exchange fell 10.5% last month to its second-lowest level in two years.
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